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spk00: Hello, ladies and gentlemen. Thank you for standing by for Li Zhu Ying's second quarter 2022 earnings conference call. At this time, all participants are in the listen-only mode. After management's remarks, there will be a question and answer session. Today's conference call is being recorded. I'll now turn the call over to your host, Effie Kang, head of capital markets for the company. Please go ahead.
spk01: Thank you very much. Hello, everyone, and welcome to Li Zhi Inc's second quarter 2022 earnings conference call. We released our financial and operating results via Newswire services earlier today, and they are available online. Participants on today's call will include our founder and CEO, Mr. Marco Lai, our COO, Mr. Zhe Longli, and our acting CFO, Ms. Chen Fanglu. Mr. Li will begin with prepared remarks on business development. I will then deliver prepared remarks of financial results on behalf of Ms. Liu. And the call will conclude with a Q&A session. As a reminder, this conference is being recorded. In addition, earnings highlights presentation and a webcast replay of this conference call will be available on the IR section of our website at ir.lit.fm. Before we continue, please note that today's discussions will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These statements typically contain words such as may, will, expect, target, estimate, intend, believe, potential, continue, or other similar expressions. Forward-looking statements involve inherent risks and uncertainties. The accuracy of these statements may be impacted by a number of business risks and uncertainties that could cause actual results to differ materially from those projected or anticipated, many of which factors are beyond our control. The company is affiliated, advisors, representatives, and underwriters Do not undertake any obligation to update this following key information except as required under the applicable law. Please also note that Li Zhi's earnings press release and this conference call include discussions of unaudited gap financial measures as well as unaudited non-gap financial measures. Please refer to Li Zhi's earnings press release for reconciliation of unaudited non-gap measures to unaudited gap measures. I will now turn the call over to our COO, Mr. Zerlong Li. Please go ahead.
spk05: 大家好,感谢大家参加励志集团2022年第二季度业绩电话会议。 Hello everyone, and thank you for joining our second quarter 2022 earnings conference call. 在2022年的第二季度,我们继续致力于围绕互动娱乐, and the growth of voice-to-social dual-bonding. Effective implementation of the globalization of diversified products. In the second quarter, the average number of active users for the overall mobile section is 49.7 million. The total number of paid users per month has reached 48.5 million. The quarterly revenue is 5.161 billion yuan. By improving organizational efficiency, we have strengthened the development of self-development technology and integrated effective operation strategies, so that profit and loss can be further improved. Among them, the net profit increased by 600 points in the same ratio, and the net profit increased by 200 points in the same ratio, reaching 34% and creating a new record. At the same time, In the second quarter of 2022, we remain focused on dual-pillar approach of interactive entertainment
spk01: plus audio-based social networking business development, and effectively executing globalized diversified product matrix strategy. In the second quarter, our total average mobile MAUs amounted to 49.7 million. Average monthly paying users totaled 485,000, and revenue reached RMB 516 million. We also took steps during the quarter to elevate our organizational efficiency and advance the development of our in-house suite of technologies while continuing to execute effective operational strategies. As a result, we further improved profitability and achieved a new record high growth margin of 34%, representing an increase of 600 basis points year-over-year and 200 basis points quarter over quarter. Moreover, we achieved our third consecutive quarter of net income on a gap basis, which increased to RMB 18.85 million in the second quarter, up 15% sequentially, and recording a profit versus a net loss in the same period of last year. Next, I'd like to share more details regarding our business development in the second quarter.
spk05: Since the beginning of this year, we have made it clear in the direction of business that we want to make Indian interactive entertainment as the main operating center. In terms of resource investment and market strategy, we are more focused on effectively increasing the efficiency and overall operating capacity. In recent years, we have also focused on the original interactive entertainment ecosystem, and promote new products of interactive entertainment, such as Xiaomi, further enriches the product competition of interactive entertainment, and increases the product competitiveness of the whole place. In addition, we have also built a unified manufacturer operation management platform to fully exploit the creativity of the value of high-quality manufacturers. For interactive entertainment businesses,
spk01: At the beginning of this year, we identified interactive audio entertainment business as our operational focus and directed our resources and marketing tactics accordingly. This strategy has significantly improved our operating efficiency and overall profitability. To augment our existing interactive entertainment ecosystem, We recently incubated and launched new interactive entertainment products, such as Xiaoximi, further enriching our interactive entertainment product matrix. In addition, by building a unified content creator operational platform, we unlocked additional value and greater creativity from our high-quality content creators, laying the foundation for the long-term growth of our interactive entertainment business.
spk05: In the second quarter, through diversified operation activities, we effectively enhance the longevity of content creators, and further enhance the profitability of interactive entertainment businesses. For example, we held the next year's Jiangninghua Anchor Lighting Competition. Through innovative interactive competition, we increased the activity of anchors, and strengthen the connection between users and streamers. We also launched creative activities such as the celebrity hall to support and train new streamers to promote the long-term development of creators within the platform. In addition, we have reached a brand co-operation with Hero Alliance for mobile games and held the Hero's Sound Contest. Encourage users to interact by creating and sharing content We are also very happy to see that in the second quarter, the user penetration rate of audio and video interaction entertainment businesses increased by 350 locations to 18.5%. The average monthly number of users reached 9.17 million. On the other hand, we have improved the activity of the content creators through traffic support and other strategies, further optimizing the cost structure, and increasing the overall efficiency level. In the next stage, we will continue to concentrate resources to expand the interactive entertainment business, hatching and creating diversified audio and video interactive entertainment products.
spk01: In the second quarter, we also effectively strengthened content creator engagement through diverse operational activities, which further boosted the profitability of our interactive entertainment business. For example, we hosted a summer carnival creator event improving content creator productivity, and fortifying their connection with users through innovative interactive competitions. We also launched the novel events such as the Hall of Fame to cultivate and support new generation creators, boosting their long-term development on the platform. Furthermore, we partnered with the gaming brand League of Legends, Wild Rift, to foster our brand connectivity and organized the cover song contest, Voice of Shining Heroes, which encouraged the users to interact in real time by creating and sharing relevant content. We were pleased to see that the user penetration rate of our interactive audio entertainment business increased 350 basis points year over year to 18.5%, and the average mobile MAUs reached 9.17 million in the second quarter. In addition, we enhanced the activity of mid- to long-term content creators through traffic support and other strategies, which further optimized our cost structure and overall growth margin. As we approach our next stage of growth, we will continue to concentrate resources on expanding our interactive entertainment business incubating and creating a diversified interactive audio entertainment product that covers more key user groups to improve its user penetration rate and further elevate the pay-in conversion rate.
spk05: In terms of globalization, we have further upgraded the product form of globalized social media PR, which is rich in real-time interaction and group play. For example, added the innovation features such as real-life adventure and give-to, to guide users to interact and socialize in the online space in a diversified way, which overall strengthens TIA's social attributes. We hope to integrate real-time interaction and online entertainment to create online social spaces for young people, and provide innovative social methods for users. With the participation of TIA users and the further improvement of the active level, the friendly interaction rate of new users and the human-to-human use market have maintained a rising trend. In the second quarter, the human-to-human use market of users increased by 44% every day, and the total penetration rate of monthly users has increased by 1.5 times. Since the end of June, the number of user-friendly relationships has increased by 1.4 times compared to the same period last year. In the future, we will continue to rely on young people's diversified interests and trends to continuously polish our products and promote user relationships.
spk01: With respect to our global development, in the second quarter, we further upgraded the product features of our global social product tier by enriching the interactive formats of the real-time interactive group space. As an example, we added innovative functions such as choose a bear and audio-driven images to guide users' online interactions and social activities in various ways, reinforcing TIA's social attributes. Through the integration of real-time interaction and online entertainment, we hope to create an online social space for young people and provide innovative social formats to users. As TIA's user engagement and activity grew, so did the upward trend in new user-brand interaction rates and average time spent per user. In the second quarter, the average daily time spent per user increased by 44% year-over-year, and the average monthly group penetration rate was up 150% year-over-year. At the end of June, the number of pairs of brand connections increased by 140% compared with the same period of last year. Going forward, we will continue to optimize our products based on users' diverse interests and hobbies, as well as young people's trendy lifestyles, strengthen user engagement, and build a more closely connected online social space.
spk05: In addition, in the global strategy, we are also constantly expanding the new market. Through the ability of speech, internal subordination to the new market, We will rely on the success of the product operation experience based on the current market opportunities and different market characteristics to combine localization environment for more innovation. In the multidirectional product governance strategy, to expand the market boundaries of business coverage and at the same time release more potential for commercialization and further enrich
spk01: In line with our globalization strategy, we have been consistently exploring new markets and incubating new products for international markets through our in-house development capabilities. Based on potential market opportunities and market differences, we will leverage our well-established experience in product operation and our multi-dimensional localized innovation capabilities to expand the market boundaries of our business within our diversified product matrix strategy, while unleashing more commercialization potential and enriching our diversified product portfolio.
spk05: At the same time, with the experience and advantages accumulated over the years in the field of software technology, we continue to strengthen the construction In recent years, we have launched a comprehensive resource technology platform, Sound Cloud, which is designed to integrate IaaS, PaaS, and SaaS three cloud computing models. The construction technology has been proven to be comprehensive and provides a systematic solution for group business. Among them, The deep cloud-based infrastructure is based on the integrated cloud structure, iLOC, to build a unified operation management platform, only to achieve multiple and one business needs. Provide flexible, safe and stable cloud service. PaaSduan uses自然的RTC实时应试品流技术平台Doremi and IAM is the representative of VODX, a real-time voice communication platform. Based on real-time voice and innovative social technology capabilities, it provides a fast, safe and high-quality audio and news transmission network. It provides more customized functions and services for diversified products. SAAS is the representative of the March Intelligence Analysis Platform. only through automated and refined smart data analysis, optimize the smart management of data assets, and drive business development with data. SengYun also integrates other business-related services such as smart investment platforms, realizing market sales, operation management, efficiency, and other comprehensive improvements in product research and development, We also believe that the technical capability of Ziyun is the foundation of our business development. In the future, we will further integrate the capabilities and services of Ziyun technology to better land the sound cloud in the applications in each business, helping the business to innovate and develop globally.
spk01: Meanwhile, leveraging our years of experience and the advantages of our self-developed technologies, we have been strengthening the development of our versatile technology platform. Recently, we unveiled VoiceCloud, an in-house hybrid cloud computing platform we developed to meet the group's business demands. By integrating the three cloud computing models, namely ICE, PaaS, and SaaS, We created a full-link technology matrix to provide a one-stop comprehensive solution for our visitors. The cloud infrastructure of VoiceCloud is based on the iROC hybrid cloud architecture, empowering a unified platform through which Li Zhi Group can operate multiple cloud tools securely and reliably. On the power side, VoiceCloud features Doremi, a self-developed RTC real-time audio and video streaming technology platform, and VoltaX, an instant messaging platform. Thanks to our innovative real-time audio and social networking technologies, together Doremi and VoltaX provide a fast, secure, high-quality audio and messaging transmission network and support more tailored features and services for our various products. In addition, WorstCloud's SaaS segment is represented by Li Zhi's business intelligence platform, which aims to upgrade internal data management efficiency through the automated intelligent data analysis and optimize the group's smart asset management database, driving business development through the data analysis. WorstCloud also integrates an intelligent marketing platform and other business-related services which help to advance product R&D, marketing, and operational efficiency. We believe our proprietary technology and in-house development capabilities are the cornerstone of our business development. We plan to further integrate self-developed technology and services and roll out Voice Cloud across our businesses, ultimately empowering business innovation and our global business expansion.
spk05: Overall, the results and experience we gained in the second quarter established a solid foundation for the long-term development of our business. Facing the future, we will use more efficient land product proofing and global strategic measures to invest core resources into interactive entertainment and voice-to-speech business to improve the overall core technology capabilities
spk01: In summary, our accomplishments in the second quarter have laid a solid foundation for the long-term, sustainable development of our business. Going forward, we will continue to refine and execute our product matrix strategy, globalization initiatives, and optimize our resource allocation. by devoting key resources to advancing our interactive entertainment and audio-based social networking business, and elevating our core technology capabilities, we will further unleash commercialization potential and accelerate our global business development.
spk05: Thank you, everyone. Next, we would like to welcome the person in charge of capital and food, Yifei Kang, and our CFO, Ms. Lu Chengfang, to introduce us to financial performance.
spk01: Thank you all. Next, I will turn the call over to our head of capital markets, Effie Kang, who, on behalf of our acting CFO, Ms. Chen Fanglu, will provide more details of our financial results. Thank you, Dalong, and hello, everyone. Today, I will deliver the following remarks on behalf of Ms. Lu. We are pleased to report improving profitability in the second quarter of 2022. With our diligent efforts to enhance operational efficiency, our growth margin hit a record high at 34% in the second quarter, up 600 basis points year-over-year. More excitingly, we have achieved a profit on a gap basis for the third consecutive quarter, with net income growing 15% sequentially to RMB 18.85 million. Moving forward, we will remain dedicated to executing our diversified product matrix strategy and enhancing core technology development to progress product innovation and commercialization. Now I would like to provide a brief overview of our financial results for the second quarter of 2022. In the second quarter, our total net revenues were RMB $515.7 million compared to RMB 559.3 million in the second quarter of 2021, primarily due to the decrease in the number of paying users and the average amount of user spending on our audio entertainment products. Cost of revenues was RMB 340.1 million in the second quarter of 2022, compared to RMB 400.5 million in the second quarter of 2021, primarily due to a decrease in the revenue sharing fees because of the decrease in net revenues and the revenue sharing percentage to content creators. Gross profit was RMB 175.6 million in the second quarter of 2022, representing an increase of 11% year-over-year. Non-GAAP gross profit was RMB 176.8 million in the second quarter of 2022, representing an increase of 9% year-over-year. Growth margin for the second quarter of 2022 increased to 34% from 28% in the second quarter of 2021. Non-GAAP growth margin for the second quarter of 2022 grew to 34% from 29% in the second quarter of 2021. Operating expenses were RMB 161.6 million in the second quarter of 2022, compared to RMB 190.3 million in the second quarter of 2021. Research and development expenses were RMB 70.3 million in the second quarter of 2022, representing a year-over-year increase of 15%. The increase was primarily due to higher salary and welfare benefits expenses and rental expenses. Selling and marketing expenses were RMB 60.8 million in the second quarter of 2022, compared to RMB 106.3 million in the second quarter of 2021, primarily due to the decrease in the promotion and marketing expenses, partially offset by the increased salary and welfare benefits expenses. We will evaluate and adjust our marketing strategy and budget based on the business performance operational needs, and market conditions. General and administrative expenses were RMB 30.6 million in the second quarter of 2022, representing a year-over-year increase of 32%. The increase was mainly due to the increased salary and welfare benefits expenses, estimated litigation compensation related to copyright matters and other professional services, Operating income was RMB 14.1 million in the second quarter of 2022 compared to a loss of RMB 31.6 million in the second quarter of 2021. Non-GAAP operating income was RMB 21.2 million in the second quarter of 2022 compared to a loss of RMB 21.7 million in the second quarter of 2021. Net income was RMB 18.9 million in the second quarter of 2022 compared to a net loss of RMB 29 million in the second quarter of 2021. And non-GAAP net income was RMB 26 million compared to a non-GAAP net loss of RMB 19.2 million in the second quarter of 2021. Basic and diluted net income per ADS were RMB 37 cents and 36 cents respectively in the second quarter of 2022, compared to a basic and diluted net loss per ADS of RMB 58 cents in the second quarter of 2021. Non-GAAP basic and diluted net income per ADS were RMB 50 cents in the second quarter of 2022, compared to non-GAAP basic and diluted net loss previous of RMB 38 cents in the second quarter of 2021. As of June 30th, 2022, we have cash and cash equivalents and then restricted cash of RMB 588.1 million. Okay, this concludes all of our prepared remarks today. I will now open the call to questions. Operator, please go ahead.
spk00: Thank you. To ask a question, please press star 11 on your telephone keypad. For the benefit of all participants on today's call, if you wish to ask your question to management in Chinese, please immediately repeat your question in English. For the sake of clarity and order, please ask one question at a time. Management will respond and then feel free to follow up with your next question. So once again, if you wish to ask a question, please press star 11 on your telephone keypad. Our first question comes from the line of Vicky Wei from CT. Please go ahead.
spk02: Is there any more regulations that we need to pay attention to? And then my second small question is, what is the biggest challenge that we are facing in the process of globalization? And then can you ask the management to share with you in terms of strategy and competitiveness? Thank you. Do you want to translate the question, Abby? Okay, fantastic. Okay, so good morning, management. Thanks for taking my questions. I have two questions. The first one is, which aspect do management focus more in terms of live streaming tipping regulations after implementation? Any more regulations should we be aware of? And my second question is, what is the biggest challenge for Li Zhi's global or Chinese companies to go global? in terms of strategy and competition? Thank you.
spk06: Thank you. Let me answer these two questions. Thank you, Vicky. In terms of supervision, we have been keeping a close eye on the relevant legal and legal rules in the industry. Recently, we have also noticed that the supervision department has continuously spent a lot of time on the functions of products, Thank you, Vicky. I will translate for Marco.
spk01: In terms of the regulations, we have been paying close attention to the relevant policies and regulations of the industry. And we have also noticed that the regulatory authorities have refined some requirements on product functions and operational specifications and data management and other aspects We believe the clear and more detailed regulations can help promote the industry's long-term development and help create a better networking environment.
spk06: We have always checked ourselves in time according to the latest policies to ensure the satisfaction of the latest regulatory requirements. We have been carrying out timely self-examinations according to the latest policies to ensure that we comply with the latest regulatory requirements.
spk01: And in the future, we will continue to follow up on the different changes in regulatory policies and meet the compliance requirements in all aspects and ensure that the sustainable and solid development of our business.
spk06: The second question is the biggest challenge facing globalization and the strategy and competition strategy. I think that for all the Chinese companies to do globalization, I think the challenge and competition are mainly focused on localization and talent. The cultural differences in different countries and regions around the world are very large. And to gain more knowledge of the local market, the contribution of excellent talent is to achieve localization products and management uh, The second question is about the biggest challenge for Leeds going global or any other Chinese companies to go global in terms of the strategy and the competition. So I will translate for Marco.
spk01: I think for all of the Chinese companies looking to expand overseas, the challenges and the competition, many concern on the localization and talent development. Culture varies between different countries and regions worldwide, so absorbing more excellent talents who understand the local market is the key to achieving product and operational localization. This is also fundamental for companies to lay a solid foundation in various markets. So we have set up local offices in key target markets around the world and actively recruited local talents and built localized teams and enhanced our market research and product design operational capabilities in the international market.
spk06: At the strategic level, I think it's very simple. The most important thing for us right now is strategic positioning. We need to carry out a solid global strategy, develop local operations, and train international talent teams. We need to deeply investigate the development opportunities and potential of various markets, and clarify the key stages of development.
spk01: On the strategy front, we think the most important thing is to be determined and then remain committed to firmly executing our global strategy. And conduct the most important thing is to be determined and then remain committed to firmly executing our global strategy. and conduct localized operations, cultivate an international talent pool, develop in-depth insights into the market opportunities, and identify development priorities at each different stage may help us achieve breakthroughs in the international business.
spk06: Thank you.
spk01: This concludes Marco's answers.
spk00: Thank you. Thank you. Our next question comes from the line of Yijiao Chen from TF Securities. Please go ahead.
spk04: Yijiao, your line is open. Please go ahead.
spk00: Okay.
spk03: You can hear me? Yes, we can.
spk04: Yes.
spk03: Okay. Thank you very much for giving me the opportunity to ask this question. I am Chen Yijiao from Tianfeng Certificate. I will ask my question in Chinese first, and then I will translate it into English. I have two small questions. The first question is about the audio and video entertainment of our basic disk. Will our company have a new layout for our basic disk in 2022? And for 2022-2023, will we have a higher expectation for Yuehuo and Erpu? And what measures will we take to continue to improve the penetration rate and price of the basic plate? This is the first question. The second question is about the sound frequency of our car. Because in fact, the car industry has been developing better recently. So how is the current progress of our sound frequency of the car? So I translate my question to the English. The first question is, in 2022, does the company have any new plans for audio entertainment? And what's the outlook for the MAU and the APU in 2022 and 2023? And the first question is, How can we increase our penetration rate and spending level per user? This is the first question. The second question is, is there an update in our in-car audio business? And what forms of cooperation will be adopted? And what is the growth potential in the field? Thanks.
spk06: Thank you, Yujiao. This is the first question. Basically speaking, we are now focusing on audio and video entertainment. We hope to focus on the development strategy of diversified product governance to explore more opportunities in the market. Through internalization of more products, we are now enriching our audio and video entertainment product governance to attract a core user group to expand the scale of the overall business and further improve the penetration rate of audio entertainment business.
spk01: Thank you, YiJia. I will translate for Marco for the first question. So like our fundamental business, currently we focus on audio entertainment business. We continue to focus on our diversified product matrix strategy. to explore more market opportunities. By incubating more products internally and enriching the product matrix, we can attract core user groups, expand the overall business scale, and further improve the user penetration rate of the audio entertainment business.
spk06: At present, our focus will be on some users who are relatively capable of commercial transformation at the audio entertainment end. to continuously optimize and promote the strategy to deliver accurate products. In addition, through the optimization of product functions and diversified operation activities, to explore more user scenarios, while increasing the participation of users, to promote the transformation of paid users, to increase the paid level of users, and to dig deeper into the potential of commercialization.
spk01: Our current focus will be on user groups with higher commercialization capabilities in the audio entertainment sector. And we will continue to optimize our marketing strategy and execute our precise user acquisition strategy. In addition, through optimizing the product functions and launching diversified operational activities, we think more user scenarios can be explored to promote the paying user conversion while also improving the user engagement and ultimately enhancing the user's spending level and exploring more commercialization opportunities?
spk06: The second question is about the vehicle fleet. In the layout of the vehicle fleet, we mainly focus on long-term market opportunities. At this stage, we mainly cover more vehicles and network platforms. The product is now available in more models to reach a wider audience. We also need to gradually develop user habits. In recent years, through Huawei's Hongmeng Smart Seat and Xiaomi's QI App, both platforms have been launched, such as Wengie and Lingpao.
spk01: The second question is about the in-car audio business. In terms of our in-car audio strategy, we are mostly aiming at the long-term market opportunities. So, currently, we are more focused on partnering with more auto companies and IOV platforms to deploy the in-car applications in more vehicle models in order to reach a wider range of user groups and cultivate user habits gradually. Recently, through Huawei's HarmonyOS smart car system and the Xiaomi Quick App platform, we have launched the in-car audio products in ITIL and BIPMOTO smart vehicles, respectively.
spk06: Our direct cooperation with car manufacturers is mainly in terms of the input and output of the application on the vehicle terminal. Our cooperation with the car network platform is mainly based on content ability and fast application. We cooperate with various forms to form a full-fledged negative energy for the audio and video entertainment in the car industry. With the rapid development of IoT technology and smart car platforms, audio and video is one of the best media in the cross-border. We believe that there will be more room for development in the future.
spk01: Our cooperation with those auto companies currently mainly focused on developing the in-car applications and other audio technology capabilities for the in-car operating systems. On the IOB platform front, our collaborations with them mainly concentrated on content capabilities and quick access applications. Adopting the multiple approaches to fulfill the diversified needs, we may empower a full spectrum of in-car audio entertainment scenarios. And with the rapid development of IoT technology and the smart in-car platforms, and the audio is one of the best cross-terminal mediums, we believe there will be a greater growth potential in the future.
spk06: Thank you. This is my answer. Thank you, Yejiao.
spk01: Thank you. This concludes Marco's answer.
spk00: As a reminder, to ask a question, please press star 1 1 on your telephone keypad. Once again, let's dial 11 for questions. As there are no further questions, I'll now turn the call back to the company for closing remarks.
spk01: Thank you once again for joining us today. If you have further questions, please feel free to contact Li Zhi's Investor Relations through the contact information provided on our website at ir.liji.fm or the Pianti Group Investor Relations. Thank you.
spk00: Thank you. It's the conference call. You may now disconnect your line. Thank you.
spk04: Thank you. Thank you. The conference will begin shortly. To raise your hand during Q&A, you can dial star 1 1.
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